When the CEO hasn’t “done it all before” – but could still be the right choice

· Active Coping,Leadership,Private Equity,Executive Assessment

If you are like many investors, you like a CEO who has already done that job well in a similar situation; you believe that the CEO's documented experience reduces your risk. Would you be willing to go with someone who doesn’t have “the track record”? What if there was a real downside to not going with the “novice”? Sometimes investors needlessly throw away important talent. You can frequently get the results you need if you understand the person you are considering, what makes them tick, and what would make them tick even better.

The right kind of management assessment can get you the insight that you need. And the right assessor will tell you how you should behave differently in order to maximize the executive’s performance. That’s what happened in the case of Wayne….

THE VERY HAPPY CASE OF WAYNE

Investors asked me to assess Wayne, the COO of a company they were planning to acquire. They had a bit of a problem. Wayne said he’d leave if he were not made CEO upon the change of ownership. Did he have the leadership and management skills to be CEO – a major strategist and the executive driving operational change and growth? As detailed below, the assessment answered with a definitive “Yes!”

My report on Wayne

Wayne is extremely intelligent. He is a logical, sequential, quick, and flexible thinker. He analyzes alternative scenarios in a sophisticated way. He creatively brings disparate pieces into a meaningful whole. He lives with the fact that he has made mistakes, and having made mistakes, tries to learn from them.

Wayne also has social intelligence. He has insight into himself and is aware of what transpires around him. His eagerness to seek out information (including typical hard facts but also how people feel and are behaving) and weave it together allows him not only to formulate effective business strategy but also to motivate and work well with others in executing it. To the extent that his intuitive style biases him to take action without a full consideration of evidence and counterarguments, Wayne solicits the viewpoints of others before making final decisions. He encourages constructive conflict as a way to explore fully opportunities and problems and to resolve them. These are admirable qualities and evidence of sophistication in his functioning.

Unusual for an executive in his late 30s, Wayne has a mature identity as a leader. He sees himself as a father figure, at times encouraging, forgiving, and empathic toward his subordinates, at other times critical, reprimanding, and willing to mete out deserved punishment. Related to Wayne’s maturity is his serious and pragmatic style. He accepts basic social values. He plays by the rules. He seeks others’ input and makes decisions after consulting them. He prefers that his subordinates accept his leadership without his having to invoke the formal authority of his role. He wants the support of his team while clearly seeking the responsibilities as leader.

Important to Wayne’s self-image is that he be perceived as a good person. He does not easily handle criticism that appears to question (or that he construes as questioning) his morality or his fundamental decency as a person. One Wayne’s few weaknesses is that he becomes defensive when he fears that others have judged him as having done something bad. His need for others to perceive him in a good light makes him slightly rigid and less open and creative than he could be. It also makes him dependent on superiors for recognition and praise.

Wayne pushes himself to take advantage of business opportunities and to do the best he can, and he expects the same of others. He does not tolerate subordinates who do not live up to expectations. He will not hesitate to be critical when necessary and is a demanding boss. He requires integrity, reliability, and competent performance in others. He does not tolerate mediocrity or dishonesty.

Wayne’s tendency to be somewhat rigid does not interfere with being pragmatic. He understands bottom-line pressures and responds to them in a way that is appropriate for the success of the business, which includes dismissing subordinates who do not meet expectations or are otherwise dispensable. Wayne is likely to demonstrate the leadership that you expect. He possesses the resources to cope with the demands of the CEO role, now and in the future. He is extremely ambitious and believes he is now at a point in his career where he is ready to run an organization. We agree. Your role in working with him should emphasize supporting him so that he can live up to his own high expectations.

My recommendations

One, you should be as explicit as possible with Wayne regarding expectations, goals, timetables, and resources he will have available, now and in the future. He tends to get touchy when presented with demands or expectations that were not previously established. He is sensitive to criticism and does not want to make a mistake and responds defensively to what he perceives as vague and poorly defined expectations.

Two, you should give Wayne a clear understanding of how you intend to work with him. He will keep his end of the understanding and will expect you to live up to your end. He’ll become frustrated if you fail to perform as promised. You should state up front what the process of control will be, and what the limits are. You should put these ground rules in writing so that Wayne cannot later complain he did not know.

Three, Wayne seeks recognition and support without being needy or exhibitionistic. He is a conscientious and moral person. It is important to him that others recognize those qualities in him. This bears on how investors should recognize Wayne’s achievements. He would like to be valued in the same moral terms he understands himself. He might like financial rewards but would also like others to see his skills and ability to grow the business. You should give him appropriate feedback if things are going well, and encourage him to keep up the good work. You should couch your criticisms to minimize the chances that he feels he is perceived as a bad person.

In sum, Wayne is a conscientious but pragmatic and bottom-line focused executive. He will do what it takes to help the Company be successful, achieving expectations in a moral way.

The very happy outcome

Two years later, investors sold the business. They rated Wayne as an “outstanding CEO who beat his budget every single month.” Their investment yielded 3.3x invested capital and had an IRR of 115%.

Conclusions that can be drawn

If investors had insisted on having a CEO who had previously been a CEO, Wayne and his valuable knowledge would have left. Someone else who may or may not have been able to lead the company would have been hired. But the investors were willing to rely on my prediction about Wayne’s ability to do the job and my guidelines for how, as controlling investors, to interact with him in order to capitalize on his strengths and minimize the risks posed by his weaknesses. As a result, they harvested the ample fruits of Wayne’s efforts. They didn’t unnecessarily trade in the actually very good card in their hand for a draw from the pile.

Leslie S. Pratch is the founder and CEO of Pratch & Company. A clinical psychologist and MBA, she advises private equity investors and management committees and Boards of Directors of public and privately held companies whether the executives being considered to lead companies possess the psychological resources and personality strengths needed to succeed. In her recently published book, Looks Good on Paper? (Columbia University Press, 2014), she shares insights from more than twenty years of executive evaluations and offers an empirically based approach to identify executives who will be effective within organizations—and to flag those who will ultimately very likely fail—by evaluating aspects of personality and character that are hidden beneath the surface.